Deck 16: Financial Merchandise Management

Question 1

A major advantage to the retail method of accounting is the ________.

A) ease of preparing periodic financial statements
B) freedom from ever having to take a physical inventory
C) accuracy of the cost complement figure in approximating cost
D) ability to directly compute net profits

Answer 1

A

Question 2

The cost of goods sold equals ________.

A) sales less merchandise available for sale
B) beginning inventory plus purchases plus transportation charges
C) the cost of merchandise available for sale minus ending inventory
D) beginning inventory less ending inventory

Answer 2

C

Question 3

The difference between the retail book value of ending inventory,as compared to the actual physical ending inventory value,is ________.

A) a shortage only
B) an overage only
C) either a shortage or an overage
D) the cost complement

Answer 3

C

Question 4

A major disadvantage to the cost method of accounting is that ________.

A) markdowns, markups, and employee discounts must be constantly computed
B) costs must be assigned to each item in stock and to each item sold
C) the cost of goods sold is not based upon actual delivery costs
D) the cost complement may not accurately reflect true costs

Question 5

In the retail method of accounting,sales,employee discounts,and stock shortages are viewed as ________.

A) adjusted markdowns
B) ending inventory value deductions
C) markdowns
D) deductions from retail value

Question 6

Merchandise cost is typically coded on packages in the ________.

A) FIFO method of inventory valuation
B) LIFO method of inventory valuation
C) cost method of retail accounting
D) retail method of accounting

Question 7

A plan that specifies which products are purchased,when products (goods and services)are purchased,and how many products are purchased is a ________ plan.

A) unit control
B) dollar control
C) basic stock
D) financial merchandise

Question 8

In developing control units,a retailer should be careful to ________.

A) change the classifications each year to reflect the model stock plan
B) use individual stockkeeping units (SKUs) as control units
C) use the broadest categories possible to facilitate data analysis
D) use classifications consistent with other internal company data

Question 9

A major disadvantage to the retail method of accounting is that ________.

A) book inventory value cannot be computed
B) the bookkeeping burden of keeping cost- and price-related data is considerable
C) perpetual inventory systems must be maintained
D) it does not reflect markdowns

Question 10

The average relationship of cost to retail value for a retailer's merchandise that is available for sale is the ________.

A) cost complement
B) inventory turnover
C) open-to-buy
D) stock-to-sales ratio

Question 11

Unit control decisions relate to ________.

A) decision making relative to stockout planning
B) open-to-buy decisions
C) assortment decisions
D) total dollar investment decisions

Question 12

Merchandise categories used by a retailer in forecasting and budgeting are commonly referred to as ________.

A) strategic business units (SBUs)
B) SIC classifications
C) UPC classifications
D) control units

Question 13

Which accounting method gives retailers a tax advantage during inflationary times?

A) retail method of accounting
B) cost method of accounting
C) LIFO
D) FIFO

Question 14

Dollar control involves ________.

A) planning and monitoring a retailer's financial investment in merchandise over a stated time period
B) the quantities that a retailer handles during a stated time period
C) ordering versus holding cost determination
D) ordering goods on the basis of lead times and safety stock

Question 15

Gross profit equals ________.

A) sales less cost of goods sold
B) adjusted gross profit times the cost complement
C) net profit less cost of goods sold
D) net profit less tax estimates

Question 16

The ending book value of inventory less ________ or plus ________ equals adjusted ending retail book value.

A) stock shortages at cost; stock overages at cost
B) stock shortages at retail; stock overages at retail
C) purchases; sales
D) markdowns; markups

Question 17

Merchandise available for sale equals ________.

A) sales less cost of goods sold
B) ending inventory less beginning inventory
C) cost of goods sold less ending inventory
D) beginning inventory plus purchases plus transportation charges

Question 18

In the cost method of accounting,to conduct a physical inventory,a retailer must ________.

A) convert the retail selling price to cost using the cost complement
B) determine the actual cost of each item
C) increase retail value to reflect additional markups
D) utilize a LIFO system

Question 19

A running total of the value of all inventory on hand at cost is kept in a ________.

A) physical inventory system
B) book inventory system
C) LIFO method of inventory valuation
D) FIFO method of inventory valuation

Question 20

Which method of inventory valuation assumes that new stock is sold first while older stock remains in a retailer's inventory?

A) retail method of accounting
B) cost method of accounting
C) LIFO
D) FIFO

Question 21

The use of pegboard displays with minimum inventory quantities noted on each location illustrates a ________ system.

A) perpetual
B) point-of-sale
C) stock-counting
D) visual inspection

Question 22

(Beginning inventory plus purchases)less (planned sales plus ending inventory)is equal to ________.

A) open-to-buy
B) planned reductions
C) the cost complement
D) markdowns

Question 23

The difference between planned purchases and purchase commitments made by a buyer for a given time period is ________.

A) open-to-buy
B) the cost complement
C) retail reductions
D) planned initial markdowns

Question 24

A retailer's monthly sales in October are equal to its average monthly sales for the year.Its monthly sales index for October equals ________.

A) 0.0
B) 1.0
C) 100.0
D) The answer cannot be determined on the basis of the data provided.

Question 25

The time span from the date an order is placed by a retailer to the date merchandise is ready for sale is known as the ________.

A) reorder point
B) order lead time
C) usage rate
D) safety stock

Question 26

Ongoing recordkeeping entries adjust for sales,purchases,transfers to other departments,and returns in a ________ system.

A) visual inspection
B) point-of-sale
C) perpetual inventory
D) stock-counting

Question 27

A major advantage of the open-to-buy concept is that it ________.

A) controls retail reductions
B) enables a retailer to adjust merchandise purchases to reflect changes in sales, markdowns, and so on
C) allows retailers to estimate stock shortages
D) minimizes ending inventory levels

Question 28

A sales cushion is added to planned monthly sales in determining beginning-of-month planned inventory in the ________ method of inventory-level planning.

A) stock-to-sales
B) weeks' supply
C) percentage variation
D) basic stock

Question 29

An electronics retailer has a beginning-of-year inventory (at cost)of $400,000; its ending inventory (at cost)is $410,000.Yearly purchases are $700,000 and transportation charges equal $25,000.The retailer's cost of goods sold is ________.

A) $ 225,000
B) $ 615,000
C) $ 715,000
D) $1,100,000

Question 30

An advantage to a low level of stock turnover is that ________.

A) inventory holding costs are low
B) quantity discounts can be received
C) merchandise on shelves is fresh
D) inventory investment is minimized

Question 31

An electronics retailer has yearly sales of $1,000,000; its beginning-of-year inventory (at cost)is $400,000 and its ending inventory (at cost)is $410,000.The retailer's annual purchases are $700,000 and transportation charges equal $25,000.The retailer's gross profit equals ________.

A) $225,000
B) $285,000
C) $325,000
D) $350,000

Question 32

The Universal Product Code (UPC)and scanning are important aspects of a ________ system.

A) manual system
B) POS perpetual inventory system
C) visual inspection
D) stock-counting

Question 33

A retailer maintains a book (perpetual)inventory system in which all figures are kept at cost values.Beginning-of-month inventory as of December 1,2016 is $300,000; purchases in December equal $100,000; and December's sales (at cost)equal $155,000.Beginning-of-month inventory for January 1,2010 equals ________.

A) $ 75,000
B) $145,000
C) $245,000
D) $300,000

Question 34

Which of the following is not a control unit for a men's specialty clothing chain?

A) suits
B) three-button suits
C) suits priced between $195 and $295
D) average sales by customer

Question 35

The economic order quantity formulas seek to trade-off which two costs?

A) order processing and holding costs
B) direct costs and indirect costs
C) out-of-pocket and cash flow costs
D) out-of-pocket and opportunity costs

Question 36

The major difference between gross and net profit is that net profit ________.

A) deducts retail operating expenses
B) does not reflect retail operating expenses
C) uses a cost complement calculation
D) estimates stock adjustments

Question 37

Safety stock is defined as ________.

A) average sales per day
B) extra inventory kept on hand to protect against out-of-stock conditions
C) the stock level at which an order must be placed
D) the time span from placing an order until goods are ready for sale

Question 38

An electronics retailer has a beginning-of-year inventory (at cost)of $400,000; its ending inventory (at cost)is $410,000.Yearly purchases are $700,000 and transportation charges equal $25,000.The retailer's merchandise available for sale is ________.

A) $ 225,000
B) $ 715,000
C) $1,125,000
D) $1,225,000

Question 39

Companywide sales of large retailers are generally forecast on the basis of a statistical technique such as ________.

A) trend analysis
B) executive judgment
C) incremental forecasting
D) focus groups

Question 40

The gross margin percentage and sales-to-stock ratio are two components of ________.

A) the break-even point
B) required initial markup percentage
C) the cost complement
D) gross margin return on investment (GMROI)

Question 41

A retailer has anticipated yearly expenses of $300,000,a net profit objective of $30,000,planned reductions of $50,000,and planned net sales of $1,000,000.What is its required initial markup percentage?

A) 30.0
B) 33.0
C) 36.2
D) 38.0

Question 42

A retail sales clerk forgot to record a markdown on a dress from $149.00 to $99.00.What impact will this bookkeeping error have on the firm?

A) It will result in an additional stock overage of $50.
B) It will result in an additional stock overage of $99.
C) It will result in an additional stock shortage of $50.
D) It will result in an additional stock shortage of $99.

Question 43

A retail firm has net sales of $2,000,000 for 2017.Its average monthly inventory at hand (at retail)was $350,000.Its annual rate of stock turnover was ________.

A) 0.22
B) 0.30
C) 1.9
D) 5.7

Question 44

A firm's ending retail book value of inventory is $300,000; its stock shortages are $15,000.If its cost complement is 0.70,what is its ending inventory at cost?

A) $199,500
B) $210,000
C) $213,100
D) $220,500

Question 45

A retailer uses the weeks' supply method of inventory-level planning.Average weekly sales during a four-month period are forecast to be $10,000; the retailer wants to stock six weeks of merchandise.What should the planned average inventory level be during this period?

A) $ 10,000
B) $ 48,000
C) $ 60,000
D) $240,000

Question 46

A retailer expects monthly sales to be $500,000 and planned reductions from sales to be $10,000.The retailer wants ending inventory to be $120,000 more than beginning inventory.Planned purchases at retail are ________.

A) $380,000
B) $410,000
C) $510,000
D) $630,000

Question 47

A retailer using the basic stock method wants its basic stock to equal 15 percent of its 2017 average monthly sales.Yearly sales for 2017 are forecast at $3,000,000.Planned sales for January 2017 are $400,000.What is the January 1,2017 planned inventory value (at retail),using the basic stock method?

A) $415,000
B) $437,500
C) $460,000
D) The answer cannot be determined from the information provided.

Question 48

A tire retailer plans to sell $100,000 worth of tires in January.Planned reductions are $15,000; planned inventory for January 1st is $300,000 and for January 31st is $350,000.As of January 8th,the retailer has ordered $15,000 for January delivery.What is the open-to-buy for the rest of the month?

A) $ 50,000
B) $ 65,000
C) $150,000
D) $165,000

Question 49

During periods of rising inventory values,a retailer using the FIFO (first-in-first-out)method could reduce its tax liability by ________.

A) estimating low deductions from retail value
B) using the cost method of retail accounting
C) switching from FIFO to the LIFO method of inventory valuation
D) using a low-cost complement

Question 50

If a retailer's average monthly sales are $400,000,what would its average monthly sales index equal?

A) 0.30
B) 100
C) 300
D) The answer cannot be determined from information provided.

Question 51

A retailer uses the percentage variation method in inventory level planning.If the store plans an average monthly stock of $400,000 and September sales are estimated at 20 percent more than average,the store's planned inventory level for September is ________.

A) $420,000
B) $440,000
C) $454,000
D) $480,000

Question 52

A retailer's ending retail book value of inventory is $165,000.A physical inventory (at retail)equals $177,000.The retailer ________.

A) switched from LIFO to FIFO
B) switched from FIFO to LIFO
C) has a stock shortage of $12,000
D) has a stock overage of $12,000

Question 53

In preparing a retail method of accounting worksheet,your accountant has provided you with the following data: January 1,2017 - December 31,2017
At Cost At Retail
Beginning inventory $ 60,000 $100,000
Net purchases 350,000 550,000
Additional markups ----- 27,000
Transportation charges 3,500 -----
What is your correct cost complement?

A) 0.60
B) 0.61
C) 0.63
D) 0.67

Question 54

A firm's average monthly sales are $300,000.If January's sales are $175,000,its monthly sales index is ________.

A) 0.58
B) 58
C) 1.71
D) 171

Question 55

If a firm's sales index in January is 128 and average monthly sales are $300,000,what is the January sales level?

A) $128,000
B) $300,000
C) $384,000
D) $428,000

Question 56

A firm's average monthly sales are $250,000.If December's sales are $650,000,December's monthly sales index is ________.

A) 0.60
B) 2.60
C) 26
D) 260

Question 57

A retailer's ending retail book value of inventory is $30,000.A physical inventory (at retail)showed a value of $28,250.The adjusted ending retail book value of inventory is ________.

A) $28,250
B) $30,000
C) $32,750
D) $58,250

Question 58

If a cost complement is 0.55,that means ________.

A) a firm has a gross margin of 55 percent
B) 55 cents of each retail sales dollar is made up of merchandise cost
C) stock shortages are 45 percent of sales
D) the cost of merchandise available for sale in a time period represents 55 percent of its retail value

Question 59

A retailer uses a stock counting-based physical inventory system.Its beginning inventory on January 1,2017 is 600 units; total purchases in January were 252 units.Sales for January were 325 units.A physical count of goods as of February 1,2017 revealed 500 units.Stock shortages for the period equal ________.

A) 27 units
B) 63 units
C) 155 units
D) 235 units

Question 60

A retailer plans retail expenses for the following year to be 30 percent of net sales,desires a 6.0 percent (of net sales)profit margin,and assumes total reductions will be 5.0 percent of net sales.What is its required initial markup percentage?

A) 30.0
B) 36.0
C) 39.0
D) 41.0

Question 61

Automatic reorder systems are best implemented for retailers that ________.

A) are independents
B) are small
C) have a perpetual inventory system and use reorder point calculations
D) are franchised

Question 62

Stock shortages may be due to bookkeeping errors such as unrecorded markdowns.

Question 63

A significant advantage to the retail method of accounting is the ability to prepare a profit-and-loss statement on the basis of book inventory figures.

Question 64

Automatic reorder systems can best be used for ________.

A) goods with high seasonality
B) staples
C) goods purchased using negotiation
D) goods with uncertain fashion cycles

Question 65

A firm with a gross margin as a percent of sales of 20 and a sales-to-stock ratio of 10 has a GMROI of ________.

A) 20
B) 75
C) 200
D) 400

Question 66

The average monthly sales index should equal 1.00.

Question 67

A firm's usage rate is 50 units,lead time is 7 days,and safety-stock requirements are 100 units.Its reorder point is ________.

A) 100 units
B) 300 units
C) 450 units
D) 500 units

Question 68

A retailer's cost complement is based upon the ratio of cost of goods sold to sales.

Question 69

A retailer uses a 30-unit reorder point,based on assuming a 5-day lead time,a 5-day usage rate,and a 5-unit safety stock.For how many days will a stockout occur if the lead time becomes 8 days and the usage rate continues at 5 units per day?

A) 0 days
B) 1 day
C) 2 days
D) 3 days

Question 70

The cost of goods sold equals the cost of merchandise available for sale less operating expenses.

Question 71

If a physical ending inventory amount exceeds the book inventory figure,the retailer has a stock shortage.

Question 72

Under the retail system of accounting,a retailer cannot compute its gross profit until after ending inventory is valued.

Question 73

A retailer's gross profit for 2017 was $70,000; its net sales were $1,000,000 and average inventory at cost equaled $250,000.Its GMROI equaled ________.

A) 25.0 percent
B) 28.0 percent
C) 27.2 percent
D) 40.0 percent

Question 74

The adjusted ending retail book value multiplied by the cost complement equals the ending inventory value at cost.

Question 75

An electronics store estimates that it can sell 2,000 memory cards each year.Each card costs the store $7.00; holding costs equal 20 percent of unit costs and order costs are $10 per order.The economic order quantity is ________.

A) 12 cards
B) 122 cards
C) 140 cards
D) 169 cards

Question 76

Two inventory accounting systems are available to a retailer: the cost and retail methods of accounting.

Question 77

Since unit controls usually precede dollar controls,a retailer must plan its assortment decisions prior to making investment commitments.

Question 78

A stationery store estimates that it can sell 2,000 inexpensive pens each year.Each pen costs the store $.20; holding costs equal 20 percent of unit costs and order costs are $10 per order.The economic order quantity is ________.

A) 300 pens
B) 333 pens
C) 500 pens
D) 1,000 pens

Question 79

A retailer uses a reorder point of 60 units.If its usage rate is 10 and its lead time is 5,what is its safety stock?

A) 0.0 units
B) 0.5 unit
C) 5.0 units
D) 10.0 units

Question 80

Holding costs are especially high for ________.

A) a retailer of staple goods
B) a computer retailer
C) floor-ready merchandise
D) goods with high inventory turnover